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http://hdl.handle.net/10419/23444
  
Title:Mutual versus Stock Insurers: Fair Premium, Capital, and Solvency PDF Logo
Authors:Laux, Christian
Muermann, Alexander
Issue Date:2007
Series/Report no.:Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting 180
Abstract:Mutual insurance companies and stock insurance companies are different forms of organized risk sharing: policyholders and owners are two distinct groups in a stock insurer, while they are one and the same in a mutual. This distinction is relevant to raising capital, selling policies, and sharing risk in the presence of financial distress. Up-front capital is necessary for a stock insurer to offer insurance at a fair premium, but not for a mutual. In the presence of an owner-manager conflict, holding capital is costly. Free-rider and commitment problems limit the degree of capitalization that a stock insurer can obtain. The mutual form, by tying sales of policies to the provision of capital, can overcome these problems at the potential cost of less diversified owners.
Subjects:ownership structure
insurance
owner-manager conflict
capital
default
JEL:G22
G32
Document Type:Working Paper
Appears in Collections:Working Paper Series: Finance and Accounting, Universität Frankfurt a. M.

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